There is always a great deal of discussion about consumer confidence going into Christmas. It is a busy time of year for travel, tourism, retail, groceries, etc. In October businesses, government and households were holding their breath leading into this busy spending period - mostly hoping for continued low interest rates, ie. cheap money, easy money. However, the reality is that easy money is easily spent and as such the money flowing through the economy is starting to speed up again. As money speeds up, businesses need to hire more labour. As labour demand increases the RBA is moved to act, in this case rase rates early so that the economy doesn't bounce back too hard, so it raises interest rates, ie. tightening the money supply, effectively making money (borrowed money) more expensive.
There is caution because of what economies have just come through in the last year or so, note this article in response to recent interest rate rises (october): http://www.theaustralian.com.au/business/news/rba-rate-rise-premature-says-anz-chief-mike-smith/story-e6frg90f-1225792367182
But despite the recent interest rate rises this is what we have just found out, in fact will lead to more rate rises(december): http://www.theaustralian.com.au/business/markets/fall-in-unemployment-rate-fuels-case-for-rba-to-lift-rates-in-february/story-e6frg926-1225809074692
There are a range of mechanisms for fine tuning our economy so that it doesn't grow to quickly - overheat; cause price instability; inflation - or too slowly - recession; unemployment; stagnation - quite a difficult balancing act. It is interesting stuff to learn more about, to watch the RBA in action as they attempt to create conditions which favour long run growth and price stability, it is also very interesting watching people squirm as rates move - there'll be more discussion on this. In the meantime, enjoy the bumper Christmas spend and get swept up in the event. Whilst your doing it, make sure your doing it on debit.
Saturday, December 12, 2009
Saturday, October 17, 2009
Thinking of buying in to the ASX?
Profit taking, high dollar acting as a break on the economy, yet our big miners continue to grow.
The news headlines in this last week are of real interest to anyone considering buying in to the ASX soon. Use the hyperlinks for each company to see the chart with recent price movements - note into your workbook the percentage rise, fall or volatility - chocolate prizes in class Wednesday!
http://www.theaustralian.news.com.au/business/story/0,28124,26218546-20142,00.html
Does the news from the last few weeks give us any confidence about the timing of our current investments? Read this next blog before you come to class. Bring some summary notes so that we can discuss... http://blogs.news.com.au/news/smartinvesting/index.php/news/comments/market_timing_an_investors_game_of_chance/
The news headlines in this last week are of real interest to anyone considering buying in to the ASX soon. Use the hyperlinks for each company to see the chart with recent price movements - note into your workbook the percentage rise, fall or volatility - chocolate prizes in class Wednesday!
http://www.theaustralian.news.com.au/business/story/0,28124,26218546-20142,00.html
Does the news from the last few weeks give us any confidence about the timing of our current investments? Read this next blog before you come to class. Bring some summary notes so that we can discuss... http://blogs.news.com.au/news/smartinvesting/index.php/news/comments/market_timing_an_investors_game_of_chance/
Friday, October 9, 2009
What stocks were tipped as 'sure things' at the beginning of the year?
http://www.news.com.au/business/money/story/0,28323,24846506-5013953,00.html
Why don't you start building your understanding of the Australian stock market with this article. You can see it is an attempt to summarize the best/safest options for investment this year. Take some notes identifying why each stock was recommended, do some research to find out what certain terms mean or ask me Wednesday. Finally, check out the chart for each stock and see how they've performed through the year. (you can use the charting tool supplied by The Australian - the link is in your email from Friday)
Why don't you start building your understanding of the Australian stock market with this article. You can see it is an attempt to summarize the best/safest options for investment this year. Take some notes identifying why each stock was recommended, do some research to find out what certain terms mean or ask me Wednesday. Finally, check out the chart for each stock and see how they've performed through the year. (you can use the charting tool supplied by The Australian - the link is in your email from Friday)
Saturday, September 26, 2009
The worst is over? Stimulus working?
http://tools.goldcoast.com.au/stories/32711621.php - the negative data continues to reveal that the GFC is far from over. Personal debt levels are still far too high, people cannot afford the debt they have accumulated to accrue the assets they aquired in recent years! So much wealth was 'created' in the last decade, but much of it created on speculative demand fueled by cheap debt - whilst the initial crisis have occured there will be continued effects for some time as many households and businesses have managed to avoid failure so far, but surviving the slowing demand conditions, potential unemployment and higher interest rates will cause more pain for lenders and borrowers in coming months and years.
This sentiment needs to be understood alongside summaries such as this http://tools.goldcoast.com.au/stories/32928221.php where the Tresury Secretary emphasises the need to continued government intervention in driving economic growth as domestic demand would otherwise have us in recession right now.
Do these two articles get you thinking about the appropriate role of government in markets and managing aggregate demand?
This sentiment needs to be understood alongside summaries such as this http://tools.goldcoast.com.au/stories/32928221.php where the Tresury Secretary emphasises the need to continued government intervention in driving economic growth as domestic demand would otherwise have us in recession right now.
Do these two articles get you thinking about the appropriate role of government in markets and managing aggregate demand?
Saturday, September 19, 2009
Value: Why does gold continue to appreciate?
Matt Whittaker from the Australian reported through the week some insight into this important investment commodity:
Understanding: Why is gold so strong at the moment?
Interpretation: Why does Frank Lesh say that 'gold is the new international currency'?
Wider reading: Is there some history to the idea of gold as an international currency or standard?
Wednesday, July 22, 2009
Signs of recovery in some of this weeks' statistics?
Why does Adam Carr suggest that the message is inconsistent? Is there a good reason for this?
http://business.smh.com.au/business/rba-optimism-grows-20090721-drfi.html
Do you think this article reads as one of pessimism, caution, or optimism?
http://business.smh.com.au/business/rba-optimism-grows-20090721-drfi.html
Do you think this article reads as one of pessimism, caution, or optimism?
Tuesday, July 14, 2009
Time for a pay rise? Why? Why not?
http://www.theaustralian.news.com.au/story/0,,25784272-2702,00.html According to the article Why shouldn't the minimum wage rise as much as is requested? Who are the stakeholders concerned?
http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/men_out_of_work/ This article focusses on a particular demographic hit by unemployment, read the posts below the article and note what some are suggesting about unemployment figures being inaccurate - describe for me why these people aren't yet measured as being unemployed.
http://www.smh.com.au/news/world/british-airways-saves-20m-with-voluntary-pay-cuts/2009/06/26/1245961406184.html Something quite unusual happening to employees at BA. What does the article suggest: Is this reasonable? Is it going to help the company? Could it jeopardize future wages and conditions?
http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/men_out_of_work/ This article focusses on a particular demographic hit by unemployment, read the posts below the article and note what some are suggesting about unemployment figures being inaccurate - describe for me why these people aren't yet measured as being unemployed.
http://www.smh.com.au/news/world/british-airways-saves-20m-with-voluntary-pay-cuts/2009/06/26/1245961406184.html Something quite unusual happening to employees at BA. What does the article suggest: Is this reasonable? Is it going to help the company? Could it jeopardize future wages and conditions?
Wednesday, July 8, 2009
Why such a difference between what the Unions think is reasonable and what the Commission is offering?
Low-paid income will drop: Gillard
Sid Maher July 08, 2009
Article from: The Australian
JULIA Gillard has condemned the Australian Fair Pay Commission's decision to freeze minimum wages, saying it failed to "strike the right balance" and would send low-paid workers' incomes backwards.
Employer groups and the opposition hailed the move as the necessary decision to protect jobs.
Despite the government not specifying a wage rise figure in its submission to the Fair Pay Commission's latest wage deliberations, the Acting Prime Minister said the freeze decision was "disappointing".
"We didn't nominate a figure; we suggested that the Fair Pay Commission should consider a pay rise for these workers, and we were obviously concerned that people should, at least, maintain their real wages," Ms Gillard said yesterday.
"This decision inevitably means that there will be a real wage reduction for low-income Australians."
In its final decision, the Fair Pay Commission decided to leave the federal minimum weekly wage at $543.78, or $14.31 an hour, despite unions asking for a $21-a-week increase.
Ms Gillard said changes to
the tax system and the federal government's stimulus package had provided real increases in
disposable incomes for most households.
The decision incensed unions and won immediate backing from employer groups, who said it would save jobs.
Australian Industry Group chief executive Heather Ridout said the decision was understandable given the current economic circumstances.
"The decision delivers a broader signal about wage restraint and the need for the current round of wage negotiations to take account of the continuing economic pressures on businesses and employment," Ms Ridout said.
"In making its decision, the Fair Pay Commission has taken into account that under the new Fair Work workplace relations system, wages will be reviewed in early 2010 by Fair Work Australia, with any minimum wage increase awarded operative from
1 July, 2010."
She said disposable incomes had been boosted by recent tax cuts, the indexation of family payments and the impact of the cash payments in December and March as part of the federal government's stimulus package.
The combination of tax cuts, family tax benefit increases and stimulus payments had added disposable income of more than $20 a week, or 4 per cent, to a single worker on the minimum wage.
Australian Chamber of Commerce & Industry workplace policy director David Gregory said the freeze on the minimum wage was a sensible decision, given the economic environment.
"Certainly we think that it's the best outcome in that context for Australian businesses," Mr Gregory said. "It's also the best outcome for Australian employees in terms of preserving Australian jobs."
ACTU secretary Jeff Lawrence said the Fair Pay Commission was a leftover from the Howard government-era Work Choices regime and the decision was "another kick in the guts for working Australians".
He said the Fair Pay Commission had shown no respect for the contribution low-paid workers were making to the economy during the downturn and had relied on discredited research.
"The decision means ordinary working Australians and their families are bearing the brunt of an economic downturn they did not cause," Mr Lawrence said.
Opposition workplace relations spokesman Michael Keenan backed the decision, saying the most important consideration in the current economic environment was to protect jobs.
"While everyone would like to see low-paid employees get a pay rise, at the moment we need to balance those considerations with the most important thing, which is preserving jobs," he said.
What/Who is the ACCI, FPC and ACTU?
What are some of the criticisms of the lack of increase in minimum wage?
List and explain some of the problems with raising the minimum wage in the current climate.
Sid Maher July 08, 2009
Article from: The Australian
JULIA Gillard has condemned the Australian Fair Pay Commission's decision to freeze minimum wages, saying it failed to "strike the right balance" and would send low-paid workers' incomes backwards.
Employer groups and the opposition hailed the move as the necessary decision to protect jobs.
Despite the government not specifying a wage rise figure in its submission to the Fair Pay Commission's latest wage deliberations, the Acting Prime Minister said the freeze decision was "disappointing".
"We didn't nominate a figure; we suggested that the Fair Pay Commission should consider a pay rise for these workers, and we were obviously concerned that people should, at least, maintain their real wages," Ms Gillard said yesterday.
"This decision inevitably means that there will be a real wage reduction for low-income Australians."
In its final decision, the Fair Pay Commission decided to leave the federal minimum weekly wage at $543.78, or $14.31 an hour, despite unions asking for a $21-a-week increase.
Ms Gillard said changes to
the tax system and the federal government's stimulus package had provided real increases in
disposable incomes for most households.
The decision incensed unions and won immediate backing from employer groups, who said it would save jobs.
Australian Industry Group chief executive Heather Ridout said the decision was understandable given the current economic circumstances.
"The decision delivers a broader signal about wage restraint and the need for the current round of wage negotiations to take account of the continuing economic pressures on businesses and employment," Ms Ridout said.
"In making its decision, the Fair Pay Commission has taken into account that under the new Fair Work workplace relations system, wages will be reviewed in early 2010 by Fair Work Australia, with any minimum wage increase awarded operative from
1 July, 2010."
She said disposable incomes had been boosted by recent tax cuts, the indexation of family payments and the impact of the cash payments in December and March as part of the federal government's stimulus package.
The combination of tax cuts, family tax benefit increases and stimulus payments had added disposable income of more than $20 a week, or 4 per cent, to a single worker on the minimum wage.
Australian Chamber of Commerce & Industry workplace policy director David Gregory said the freeze on the minimum wage was a sensible decision, given the economic environment.
"Certainly we think that it's the best outcome in that context for Australian businesses," Mr Gregory said. "It's also the best outcome for Australian employees in terms of preserving Australian jobs."
ACTU secretary Jeff Lawrence said the Fair Pay Commission was a leftover from the Howard government-era Work Choices regime and the decision was "another kick in the guts for working Australians".
He said the Fair Pay Commission had shown no respect for the contribution low-paid workers were making to the economy during the downturn and had relied on discredited research.
"The decision means ordinary working Australians and their families are bearing the brunt of an economic downturn they did not cause," Mr Lawrence said.
Opposition workplace relations spokesman Michael Keenan backed the decision, saying the most important consideration in the current economic environment was to protect jobs.
"While everyone would like to see low-paid employees get a pay rise, at the moment we need to balance those considerations with the most important thing, which is preserving jobs," he said.
What/Who is the ACCI, FPC and ACTU?
What are some of the criticisms of the lack of increase in minimum wage?
List and explain some of the problems with raising the minimum wage in the current climate.
Friday, June 12, 2009
Signs of recovery affecting Monetary Policy expectations...
Recovery signs put rate rises on agenda
Clancy YeatesJune 13, 2009 Sydney Morning Herald
MONEY markets have slashed the odds of further cuts to official interest rates after a string of indicators showing the economy and global conditions are holding up better than expected.
There is now only a one in four chance of a further 0.25 percentage point cut in rates later this year, as implied by market prices, whereas in March they were factoring in a cut of up to 0.50 percentage points from the current level of 3 per cent.
Moreover, futures markets are also tentatively pricing in rises in interest rates from early next year, though the outcome is difficult to predict at the moment.
Analysts say the change in sentiment is a response to persistent "green shoots" in global markets and the surprisingly resilient state of the domestic economy.
In the latest sign of global improvement, China again beat economists' expectations by notching up growth of 15.2 per cent in its retail sector last month, and further strength in industrial production.
The chief interest strategist at Deutsche Bank, David Plank, said the main reason for the changes in interest rate expectations was the improvement in international conditions.
"It's not that the global economy's in good shape, but it's not as bad as it looks," he said.
In another promising sign for world growth, crude oil traded near a seven-month high of $US72 a barrel after the International Energy Agency raised its outlook for oil consumption for the first time since August.
On the domestic front, Mr Plank said a more buoyant mood in markets was also lowering the odds that the Reserve Bank would provide further stimulus with cuts to lending rates.
This lift in investor confidence has also boosted the ASX 200 index to 4062.2 points, its highest close since November.
"We've seen more than a 30 per cent rally in equity markets, and credit spreads have come in sharply," Mr Plank said.
Yet despite the newfound optimism in credit markets, the Commonwealth Bank yesterday raised its main standard variable mortgage rate by 10 basis points, citing higher credit costs.
The chief economist at Nomura, Stephen Roberts, said the lower expectations of interest rate cuts also reflected a rise in key commodities used in industrial production, such as copper, which reached an eight-month high yesterday. And once again China is seen as the driving force behind the rise.
Yesterday's figures also said China's industrial production expanded at an 8.9 per cent annual rate, with car production almost double to 35 per cent last month, compared with 17.3 per cent previously.
"It's the latest piece of evidence that China, of all the economies in the world, is going to have a U-shaped recovery," Mr Roberts said.
Markets overseas are also pricing in an interest rate rise before the end of the year in the US, where official rates are in effect zero. Markets in New Zealand and Canada are predicting higher interest rates from early next year.
Despite the market optimism, the Reserve Bank said last week that "scope remains for some further easing of monetary policy".
See if you can locate some of these 'string of indicators' which are leading market confidence which has this journalist commenting... find them, share them in your comment and interpret them if you can.
Clancy YeatesJune 13, 2009 Sydney Morning Herald
MONEY markets have slashed the odds of further cuts to official interest rates after a string of indicators showing the economy and global conditions are holding up better than expected.
There is now only a one in four chance of a further 0.25 percentage point cut in rates later this year, as implied by market prices, whereas in March they were factoring in a cut of up to 0.50 percentage points from the current level of 3 per cent.
Moreover, futures markets are also tentatively pricing in rises in interest rates from early next year, though the outcome is difficult to predict at the moment.
Analysts say the change in sentiment is a response to persistent "green shoots" in global markets and the surprisingly resilient state of the domestic economy.
In the latest sign of global improvement, China again beat economists' expectations by notching up growth of 15.2 per cent in its retail sector last month, and further strength in industrial production.
The chief interest strategist at Deutsche Bank, David Plank, said the main reason for the changes in interest rate expectations was the improvement in international conditions.
"It's not that the global economy's in good shape, but it's not as bad as it looks," he said.
In another promising sign for world growth, crude oil traded near a seven-month high of $US72 a barrel after the International Energy Agency raised its outlook for oil consumption for the first time since August.
On the domestic front, Mr Plank said a more buoyant mood in markets was also lowering the odds that the Reserve Bank would provide further stimulus with cuts to lending rates.
This lift in investor confidence has also boosted the ASX 200 index to 4062.2 points, its highest close since November.
"We've seen more than a 30 per cent rally in equity markets, and credit spreads have come in sharply," Mr Plank said.
Yet despite the newfound optimism in credit markets, the Commonwealth Bank yesterday raised its main standard variable mortgage rate by 10 basis points, citing higher credit costs.
The chief economist at Nomura, Stephen Roberts, said the lower expectations of interest rate cuts also reflected a rise in key commodities used in industrial production, such as copper, which reached an eight-month high yesterday. And once again China is seen as the driving force behind the rise.
Yesterday's figures also said China's industrial production expanded at an 8.9 per cent annual rate, with car production almost double to 35 per cent last month, compared with 17.3 per cent previously.
"It's the latest piece of evidence that China, of all the economies in the world, is going to have a U-shaped recovery," Mr Roberts said.
Markets overseas are also pricing in an interest rate rise before the end of the year in the US, where official rates are in effect zero. Markets in New Zealand and Canada are predicting higher interest rates from early next year.
Despite the market optimism, the Reserve Bank said last week that "scope remains for some further easing of monetary policy".
See if you can locate some of these 'string of indicators' which are leading market confidence which has this journalist commenting... find them, share them in your comment and interpret them if you can.
Saturday, June 6, 2009
Downturn, but not quite a recession...
Self-serve stimulus packages
David Dale
June 6, 2009 Sydney Morning Herald
NOW is the winter of our mass content. Undeterred by recession and swine flu, Australians are rushing to stimulate themselves in every conceivable way - at the cinema, on disc, via the handsets of their games machines and earphones of their music players, on the box, on the computer and even via that most ancient medium, ink on paper.
Malcolm Turnbull may yell, "Stop laughing, this is serious," but we're not listening. Over the past six weeks, more than a million people bought tickets to see each of these movies: Angels And Demons, Star Trek, Wolverine, Monsters Vs Aliens, Fast And Furious and Night At The Museum 2. On DVD, we bought more than 100,000 copies of Twilight, Australia and Slumdog Millionaire.
On TV, 2 million people a week watch Thank God You're Here, Talkin' 'Bout Your Generation, Masterchef and (when there's no competing footy) Spicks And Specks and The Chaser's War On Everything. On our gameboxes we play Pokemon Platinum, UFC 2009 Undisputed, WiiFit, EA Sports Active and GH Metallica.
And we spend more than $40 million a month on recordings. The music industry was supposed to be bankrupt by now but it has morphed. Nobody buys singles in physical form but this year we've downloaded thousands of digital versions of Pokerface by Lady Gaga, So What by Pink, Sex On Fire by Kings of Leon, Single Ladies by Beyonce and Love Story by Taylor Swift.
The old-fashioned album is thriving. The Australian Record Industry Association announced last month that I'm Not Dead by Pink had gone "10 platinum" (where "one platinum" means 70,000 copies distributed by the record company).
These albums also sold more than half a million copies this decade: Innocent Eyes, Delta Goodrem; 1, the Beatles; The Sound Of White, Missy Higgins; Come Away With Me, Nora Jones; Only By The Night, Kings of Leon; Funhouse, Pink; Back To Bedlam, James Blunt; Get Born, Jet; The Eminem Show, Eminem; and Odyssey Number 5, Powderfinger.
In addition, music DVDs are booming. Each of these sold more than 150,000 copies since 2003: Live In Australia, Andre Rieu; Hell Freezes Over, the Eagles; Delta, Delta Goodrem; What We Did Last Summer, Robbie Williams; Live From Wembley Arena, Pink; Number Ones, Michael Jackson; and Pulse, Pink Floyd. You may question Australia's taste but you can't doubt its eagerness to spend on musical experiences.
Another entertainment industry that was supposed to be terminally ill, newspaper publishing, is enjoying the revelation that its death throes are so slow as to be unnoticeable. The latest report of the Audit Bureau of Circulations shows that over the 12 months to March, the sales of daily and weekly newspapers in this country declined by a massive 1 per cent. That puts Australia out of step with Britain and America, where newspaper circulations this decade have been dropping by 6 per cent a year and publishers are in a panic to find a financial model that works online. Every weekday, 2.2 million Australians buy a printed newspaper. On Saturdays, 3 million buy a paper. On Sundays, 3.3 million buy a paper.
Dying? That doesn't even look like a mild case of flu.
David Dale
June 6, 2009 Sydney Morning Herald
NOW is the winter of our mass content. Undeterred by recession and swine flu, Australians are rushing to stimulate themselves in every conceivable way - at the cinema, on disc, via the handsets of their games machines and earphones of their music players, on the box, on the computer and even via that most ancient medium, ink on paper.
Malcolm Turnbull may yell, "Stop laughing, this is serious," but we're not listening. Over the past six weeks, more than a million people bought tickets to see each of these movies: Angels And Demons, Star Trek, Wolverine, Monsters Vs Aliens, Fast And Furious and Night At The Museum 2. On DVD, we bought more than 100,000 copies of Twilight, Australia and Slumdog Millionaire.
On TV, 2 million people a week watch Thank God You're Here, Talkin' 'Bout Your Generation, Masterchef and (when there's no competing footy) Spicks And Specks and The Chaser's War On Everything. On our gameboxes we play Pokemon Platinum, UFC 2009 Undisputed, WiiFit, EA Sports Active and GH Metallica.
And we spend more than $40 million a month on recordings. The music industry was supposed to be bankrupt by now but it has morphed. Nobody buys singles in physical form but this year we've downloaded thousands of digital versions of Pokerface by Lady Gaga, So What by Pink, Sex On Fire by Kings of Leon, Single Ladies by Beyonce and Love Story by Taylor Swift.
The old-fashioned album is thriving. The Australian Record Industry Association announced last month that I'm Not Dead by Pink had gone "10 platinum" (where "one platinum" means 70,000 copies distributed by the record company).
These albums also sold more than half a million copies this decade: Innocent Eyes, Delta Goodrem; 1, the Beatles; The Sound Of White, Missy Higgins; Come Away With Me, Nora Jones; Only By The Night, Kings of Leon; Funhouse, Pink; Back To Bedlam, James Blunt; Get Born, Jet; The Eminem Show, Eminem; and Odyssey Number 5, Powderfinger.
In addition, music DVDs are booming. Each of these sold more than 150,000 copies since 2003: Live In Australia, Andre Rieu; Hell Freezes Over, the Eagles; Delta, Delta Goodrem; What We Did Last Summer, Robbie Williams; Live From Wembley Arena, Pink; Number Ones, Michael Jackson; and Pulse, Pink Floyd. You may question Australia's taste but you can't doubt its eagerness to spend on musical experiences.
Another entertainment industry that was supposed to be terminally ill, newspaper publishing, is enjoying the revelation that its death throes are so slow as to be unnoticeable. The latest report of the Audit Bureau of Circulations shows that over the 12 months to March, the sales of daily and weekly newspapers in this country declined by a massive 1 per cent. That puts Australia out of step with Britain and America, where newspaper circulations this decade have been dropping by 6 per cent a year and publishers are in a panic to find a financial model that works online. Every weekday, 2.2 million Australians buy a printed newspaper. On Saturdays, 3 million buy a paper. On Sundays, 3.3 million buy a paper.
Dying? That doesn't even look like a mild case of flu.
Tuesday, May 26, 2009
what does ageing mean for us?
Over the coming years you will notice more and more policies designed specifically to reduce the massive costs of an ageing population. Rising Government debt will further exacerbate the issue which can only lead to higher taxes and/or a reduction in services. Start saving now, you'll need it.
Friday, May 22, 2009
Investing now...?
How soon will the Australian economy recover, still much speculation: http://business.smh.com.au/business/budget-optimists-are-guessing-too-20090522-biaz.html
Divided opinion, but even the best signs are far from bullish: http://www.theaustralian.news.com.au/business/story/0,28124,25524015-643,00.html
Share markets have shown some recovery in last few months, but stories of business failures remain a relevant consideration: http://business.smh.com.au/business/collapse-a-cautionary-tale-for-ad-industry-20090522-biar.html
Yet, in the same paper you can read about other business successes: http://business.smh.com.au/business/amatil-pops-the-cork-on-latest-growth-figures-20090522-biax.html
Some of you were interested in our big minin firms as a possible investment, yet RIO's prices have taken a battering: http://news.smh.com.au/breaking-news-business/rio-takes-borates-business-off-market-20090523-biiu.html
Divided opinion, but even the best signs are far from bullish: http://www.theaustralian.news.com.au/business/story/0,28124,25524015-643,00.html
Share markets have shown some recovery in last few months, but stories of business failures remain a relevant consideration: http://business.smh.com.au/business/collapse-a-cautionary-tale-for-ad-industry-20090522-biar.html
Yet, in the same paper you can read about other business successes: http://business.smh.com.au/business/amatil-pops-the-cork-on-latest-growth-figures-20090522-biax.html
Some of you were interested in our big minin firms as a possible investment, yet RIO's prices have taken a battering: http://news.smh.com.au/breaking-news-business/rio-takes-borates-business-off-market-20090523-biiu.html
Sunday, May 17, 2009
Appropriate spending?
The Federal Budget brought about some interesting discussion on Fiscal policy and estimates regarding how soon Australia might be back to trend growth.
What were your reactions to the budget? What did your parents have to say?
read budget here: http://www.budget.gov.au/2009-10/content/speech/html/speech.htm and follow links through the site to read more.
What were your reactions to the budget? What did your parents have to say?
read budget here: http://www.budget.gov.au/2009-10/content/speech/html/speech.htm and follow links through the site to read more.
Monday, May 11, 2009
Budget week
Much media attention will be directed to analysis and presentation of the Federal Budget this week. A very helpful start in easy to understand language will be found at http://www.sbs.com.au/news/specialcoverage/46/Budget-2009#
We'll have daily copies of the Australian and Courier Mail in the library and my office, but wider reading should also be occuring - try discussing the implications on your family with your parents.
We'll have daily copies of the Australian and Courier Mail in the library and my office, but wider reading should also be occuring - try discussing the implications on your family with your parents.
Wednesday, April 8, 2009
Where is Jung Wu?
Said he wanted some articles to respond to, but he's not responding to the recent posts. In fact, no body is.... should I go on holiday and forget about you all?
Consumer confidence improves... indicating what?
Consumer confidence is a closely watched and hotly debated economic indicator. Some analysts regard it as an exceptionally meaningful barometer and forecasting tool, and many cite it as a strong factor in stock market swings. Yet others question its fundamental validity. Can we trust gauges of consumer confidence? Just what do they measure? How do these measurements interact with economic conditions? Do movements in confidence correlate with other indicators, including personal spending? Is confidence a leading, lagging or coincident indicator of economic recession and recovery?
Here's what was reported in the Australian today - note what story they think the figures suggest:
Why don't you do some wide reading on the usefulness of Consumer confidence as a macro economic indicator...
Sunday, April 5, 2009
DRQ:Consumer behaviour changing in response to...
This article from the Economist suggests reasons why consumer behaviour is changing. Explain why using evidence from the article, highlighting the use of coincident indicators such as these figures in the graph. Evaluate the effects through the economy as savings become more of a priority, also how businesses will have to adjust to attact potential shoppers. Using the DRQ answering process to define red terms, diagram to show falling demand, then blue directions for the rest of the answer.
DRQ: Soaring price of Gold...
People are literally trying to find more gold as its price keeps rising. Analyse why Demand for Gold continues to rise in-light of economic uncertainty and risks of inflation. You might also explain some of the history of the commodity as a standard for valuing currency, etc.
Monday, March 23, 2009
Bear talk - time to restructure....
http://www.abc.net.au/insidebusiness/
Watch Alan Kohler's interview with Stephen Roach of Morgan Stanley. Some interesting insight into where the market is due to correct further after excessive growth and activity.
List the different bubbles Stephen talks about. Why is 'carnage' expected? What's out of balance? What bubble exists in Australia which may still have further to deflate?
What restructuring needs to occur in the Chinese economy, how different is this to USA?
What is he worried about? From Demand and Supply side?
What is missing in Australia's economic plan?
How have central banks been negligent in relation to asset bubbles?
What figures from the Depression are put forward as being far in excess of anything we will experience in our future?
Watch Alan Kohler's interview with Stephen Roach of Morgan Stanley. Some interesting insight into where the market is due to correct further after excessive growth and activity.
List the different bubbles Stephen talks about. Why is 'carnage' expected? What's out of balance? What bubble exists in Australia which may still have further to deflate?
What restructuring needs to occur in the Chinese economy, how different is this to USA?
What is he worried about? From Demand and Supply side?
What is missing in Australia's economic plan?
How have central banks been negligent in relation to asset bubbles?
What figures from the Depression are put forward as being far in excess of anything we will experience in our future?
Wednesday, March 18, 2009
Why higher oil prices haven't cut demand...
http://www.msnbc.msn.com/id/6249750%20
Msnbc - american media source - wide range of links and data regarding the future of oil, prices and alternative fuels.
http://www.accc.gov.au/content/index.phtml/itemId/793605
price of oil is Singapore markets, direct effect upon bowser prices for fuel in Australia.
http://www.accc.gov.au/content/index.phtml/itemId/790921
follow the ACCC's investigation of fuel pricing in Australia...
http://www.accc.gov.au/content/item.phtml?itemId=300941&nodeId=ed87dd1de7d0b91f4b4b06d2b40f875e&fn=Caltex Australia.pdf
see Caltex's response.
Msnbc - american media source - wide range of links and data regarding the future of oil, prices and alternative fuels.
http://www.accc.gov.au/content/index.phtml/itemId/793605
price of oil is Singapore markets, direct effect upon bowser prices for fuel in Australia.
http://www.accc.gov.au/content/index.phtml/itemId/790921
follow the ACCC's investigation of fuel pricing in Australia...
http://www.accc.gov.au/content/item.phtml?itemId=300941&nodeId=ed87dd1de7d0b91f4b4b06d2b40f875e&fn=Caltex Australia.pdf
see Caltex's response.
Positive data? Confidence in Aussie share market?
Australian sharemarket forecast to rise, dollar gains 3pc
Allison Jackson March 19, 2009
Article from: The Australian
THE Australian dollar surged and shares are expected to open higher after the US Federal Reserve's decision to buy government bonds.The Aussie surged 2.8 per cent to US67.98 cents, the highest level in more than five weeks, from yesterday’s close of US66.13c. The June share price index futures contract rose 30 points to 3508, pointing to the possibility of a 0.9 per cent rise in the S&P/ASX 200. Australian three-year government bond futures also soared on the back of the announcement, rising 21 points to 96.99 for an implied yield of 3.01 per cent. The Fed said it would buy up to $US300 billion ($443 billion) in longer-term government bonds as well as spend an additional $US750 billion mopping up mortgage-back securities, in order to reduce rates for business and consumer loans and stimulate spending in the economy. The plan pushed Wall Street higher. The Dow rose 90.88 points (1.23 per cent) to 7486.58, its highest close in a month. The S&P 500 added 16.23 points (2.09 per cent) to 794.35, after ticking above the psychologically significant 800-level during the session for the first time since February 17. The technology-oriented Nasdaq Composite rose 29.11 points (1.99 per cent) to 1491.22, helped by a reported IBM bid to buy Nasdaq component Sun Microsystems.
Practise responding to this article a little like you would a DRQ question:
1.Define the terms Bond, futures, Dow Jones, S&P 500, Nasdaq, index, confidence.
2.Draw an appropriate diagram to help show what is happening to one of these markets and why.
3.Use your knowledge and evidence from the article to explain the effect of news like this on the Australian share market.
Allison Jackson March 19, 2009
Article from: The Australian
THE Australian dollar surged and shares are expected to open higher after the US Federal Reserve's decision to buy government bonds.The Aussie surged 2.8 per cent to US67.98 cents, the highest level in more than five weeks, from yesterday’s close of US66.13c. The June share price index futures contract rose 30 points to 3508, pointing to the possibility of a 0.9 per cent rise in the S&P/ASX 200. Australian three-year government bond futures also soared on the back of the announcement, rising 21 points to 96.99 for an implied yield of 3.01 per cent. The Fed said it would buy up to $US300 billion ($443 billion) in longer-term government bonds as well as spend an additional $US750 billion mopping up mortgage-back securities, in order to reduce rates for business and consumer loans and stimulate spending in the economy. The plan pushed Wall Street higher. The Dow rose 90.88 points (1.23 per cent) to 7486.58, its highest close in a month. The S&P 500 added 16.23 points (2.09 per cent) to 794.35, after ticking above the psychologically significant 800-level during the session for the first time since February 17. The technology-oriented Nasdaq Composite rose 29.11 points (1.99 per cent) to 1491.22, helped by a reported IBM bid to buy Nasdaq component Sun Microsystems.
Practise responding to this article a little like you would a DRQ question:
1.Define the terms Bond, futures, Dow Jones, S&P 500, Nasdaq, index, confidence.
2.Draw an appropriate diagram to help show what is happening to one of these markets and why.
3.Use your knowledge and evidence from the article to explain the effect of news like this on the Australian share market.
Thursday, March 12, 2009
Media criticism of fuel watch...
http://www.nicholsoncartoons.com.au/flash/flash.php?id=381
Have a look through Nicholson's cartoons to see some of the criticism of the political response to fuel prices over the last year or so...
http://www.nicholsoncartoons.com.au/cartoon_6071.html
Have a look through Nicholson's cartoons to see some of the criticism of the political response to fuel prices over the last year or so...
http://www.nicholsoncartoons.com.au/cartoon_6071.html
Begin your inquiry: What issues petrol prices?
Here the ACCC provides information regarding the 'price cycles' of fuel in major cities. This gives both suppliers and consumers more information about pricing - does this fact contribute to more competitive markets? There is other information which is very useful regarding the 'determinants of price in this market:
http://www.accc.gov.au/content/index.phtml/itemId/280309
Fuelwatch was an initiative in Western Australia to reduce producer sovereignty and potential for pricing strategies which were unfair for consumers. You can learn a great deal through this little resource:
http://www.fuelwatch.wa.gov.au/info/dsp_petrol_prices.cfm
Our economy may be slowing, but there is still inflationary pressure. This article discusses some recent figures and the affect of an increasing fuel price:
http://www.abc.net.au/news/stories/2009/03/02/2504819.htm
OPEC will continue to play with Supply to affect the price of oil and ofcourse petrol, notice the expectations of a reduction in supply in response to lower prices in Singapore:
http://www.theaustralian.news.com.au/story/0,25197,25166480-12377,00.html
Here's an interesting discussion about good politics and bad economics relating to fuel prices: http://www.theaustralian.news.com.au/story/0,25197,23765241-5013868,00.html
http://www.accc.gov.au/content/index.phtml/itemId/280309
Fuelwatch was an initiative in Western Australia to reduce producer sovereignty and potential for pricing strategies which were unfair for consumers. You can learn a great deal through this little resource:
http://www.fuelwatch.wa.gov.au/info/dsp_petrol_prices.cfm
Our economy may be slowing, but there is still inflationary pressure. This article discusses some recent figures and the affect of an increasing fuel price:
http://www.abc.net.au/news/stories/2009/03/02/2504819.htm
OPEC will continue to play with Supply to affect the price of oil and ofcourse petrol, notice the expectations of a reduction in supply in response to lower prices in Singapore:
http://www.theaustralian.news.com.au/story/0,25197,25166480-12377,00.html
Here's an interesting discussion about good politics and bad economics relating to fuel prices: http://www.theaustralian.news.com.au/story/0,25197,23765241-5013868,00.html
Wednesday, March 11, 2009
Fiscal stimulus - changing who holds the debt and when it is repayed?
In this article Ross Gittens of SMH anticipates that Australians will save most of the upcoming Fiscal Stimulus to pay off oversized debts:
http://business.smh.com.au/business/its-a-hangover-take-the-medicine-20090310-8u58.html
Is the Government anticipating this, or that our propensity to consume is high enough to keep the economy growing and keep up spending? Gittens title suggests that, whatever we do with the initial hand out, it is still the medicine which will ultimately contribute to lessening the 'hangover.' But, continuing the metaphor, what if many Australian's didn't 'get drunk' - having borrowed cautiously, saved prudently and spent wisely through this last boom anticpating a down turn in the market. These people don't need medicine - which itself will have side effects: http://www.theaustralian.news.com.au/story/0,25197,25175184-601,00.html
Here Peter Costello is reported to have warned the Australian public that Government spending now is financed by debt and itself will require repayment and interst payments later on - suggesting it may not be the most prudent policy decision.
http://business.smh.com.au/business/its-a-hangover-take-the-medicine-20090310-8u58.html
Is the Government anticipating this, or that our propensity to consume is high enough to keep the economy growing and keep up spending? Gittens title suggests that, whatever we do with the initial hand out, it is still the medicine which will ultimately contribute to lessening the 'hangover.' But, continuing the metaphor, what if many Australian's didn't 'get drunk' - having borrowed cautiously, saved prudently and spent wisely through this last boom anticpating a down turn in the market. These people don't need medicine - which itself will have side effects: http://www.theaustralian.news.com.au/story/0,25197,25175184-601,00.html
Here Peter Costello is reported to have warned the Australian public that Government spending now is financed by debt and itself will require repayment and interst payments later on - suggesting it may not be the most prudent policy decision.
Thursday, March 5, 2009
Credit crisis forcing a reflection on dominant market ideology?
End of Chicago free-market ideals?
By Sarah Brown in Chicago
Does the recent financial crisis signal the end of free-market economics? [Reuters]
Nestled within the leafy campus of the University of Chicago, stands a brownstone building known currently as the Chicago Theological Seminary Building.
But the building's new occupants have more worldly pursuits than the study of God.
It is now the planned site for what will be the Milton Friedman Institute for Research in Economics.
The new $200m establishment will be dedicated to the Nobel prize-winning economist viewed as the pioneer of neo-liberal economic thought and founder of the so-called "Chicago School" of economists, whose policies have shaped world markets for decades.
However, those who commissioned the establishment could not have picked a more inauspicious time for its launch – as Friedman's policies, which influenced so many within US politics, are widely being blamed for the current global financial turmoil.
At a time when the world is beginning to view tighter regulation and oversight of markets as the only way out of the crisis, many people are questioning whether the 'Chicago school' of ideology itself has any future.
Dominating ideology
The Chicago School of Economics is less of an actual department than a school of thought – shaped by Friedman and his colleagues working across the economics department and the nearby law and business schools in the 1950s.
The 'Chicago School' influencedgovernments around the worldFriedman and his allies rejected Keynesianism – the popular economic theory of the time which espoused belief in the state's role in stimulating economic growth and stability in the private sector through interest rates, taxes and public works – in favour of "laissez faire" capitalism and deregulation.
"In the 1950s and 1960s there was only a small isolated minority who believed in methological individualism – the preference of individuals - as opposed to institutions,' says Gerald Friedman (who is not related to the late Milton), the professor of economics at the University of Massachusetts at Amherst.
"But time passed until, by the 1980s, the Chicago School came to dominate US economic thought."
But, although feted by many, critics argued that much of the Chicago School's ideas were best implemented by undemocratic states – pointing in particular to the infamous "Chicago Boys" of 25 Chilean economists trained by Friedman at the school who then returned to Chile to impose free-market policies under General Augusto Pinochet's rule - a period marked by his brutal repression and atrocities against human rights.
And just last month, as the US financial markets crumbled and protesters marched down New York's Wall Street, even Alan Greenspan, the former chairman of the US Federal Reserve, made the extraordinary admission to a US house committee on the crisis that he had "found a flaw ... in the model that I perceived is the critical functioning structure that defines how the world works" - the very basis of the free-market school of thought itself.
'Scapegoats'?
But Robert E Lucas, a professor of economics at Chicago University and a member of the original Chicago School, rejects claims that the ideology is responsible for the current financial turmoil, saying that the late Friedman and his colleagues have been made into "scapegoats".
In depth
"We have a free-markets tradition, but I personally don't believe [that the school is responsible]," he says.
"It doesn't mean anything – why don't you ask these guys [critics] what should be done specifically and what should be done now?
"People like [Josef] Stiglitz [the US economist and critic of free markets] use name-calling instead of just diagnosing the problem and saying what should be done.
"Should there have been regulation to prevent this? Well sure, but what sort of regulation? Let them spell out what regulation we should have in place."
But Gerald Friedman says that many people within the financial community feel it is the flawed methodology of the Chicago school which has facilitated the crisis.
"There is a lot of anger towards the Chicago school and the people on Wall Street feel betrayed,” he says.
"Deregulation has been a complete disaster for them."
"I think [the Chicago School] changed the direction of economics, but it’s over now and completely discredited."
Campaign issue
The question of the economy proved central in recent weeks on the US presidential election campaign trail.
In focus
Democrat Barack Obama, the victor and new president of the US, has Austan Goolsbee, a professor of economics at the Chicago Business school and Cass Sunstein, a legal scholar who taught at the Chicago University’s Law school for decades.
His defeated rival, Republican John McCain, had Jack Kemp, a fellow Republican and proponent of the Chicago school ideology.
McCain had been swift to seize on Obama's economic plans as "evidence" of what he called "socialism" during the race.
He's accused Obama of wanting to "spread the wealth" and of aiming for the role of "redistributor-in-chief" while Sarah Palin, his vice-presidential running mate, told a rally in Ohio that "now is not the time to experiment with socialism".
Obama, who was favoured by voters as being the best choice to deal with the economic crisis, assured voters he "loves the markets", causing some left-wing commentators to refer disparagingly to the Illinois senator's own advisers as "Chicago Boys".
But Gerald Friedman says that Sunstein, seen as a relative progressive, is viewed as the man who will shape president Obama's policies and he will be much more "aggressive" in finding a solution to the crisis.
"McCain's guys had the very conventional old-school aspects of [economics] which were 20 years out of date," he says.
"[With Obama] it's not New Deal, big government but, on the other hand, it's certainly – for first time since the 1970s - that we ... have a government that's a significant step [away] from the Chicago School."
Still believers?
However, if the Chicago School's philosophy is perceived by some to be finished, this is not a message that has so far trickled down to everyone.
On the university campus, students at the Chicago School of Business's sleek, glass-panelled school are still scurrying to classes - albeit in smart suits more befitting of a bank boardroom meeting than economics 101 classes - and meeting friends for coffee in the building’s cavernous hall.
They are the next generation of business leaders and the influence of the Chicago School of Economics looms large.
Many of them told Al Jazeera they had applied to study at the university purely for the prestige of attending classes still taught by the founding fathers of the free-market movement.
Nikolai, a young MBA (Masters of Business Administration) student from Germany who did not want to give his last name, said many of his friends had thought of switching their degrees from finance because of concerns over market conditions and fears of not being able to get jobs once they graduate.
But he still retains confidence in the school's tenets.
"Maybe it's just for the time being, this downturn," he ventures.
"Right now there are some arguments against it - but I’m still a believer in free markets."
In economics we understand down turns not as the end of capitalism, or free markets, but as part of cyclical activity. Proponents of other ideologies and systems see this as an opportunity to highlight failures in the system, and a failure of the system itself. Obama has promoted himself as being able to find solutions - what is he hoping to find? what is he hoping to do? Discuss whether the system itself is actually correcting - without any need for Government intervention, solution finding or adjustments.
By Sarah Brown in Chicago
Does the recent financial crisis signal the end of free-market economics? [Reuters]
Nestled within the leafy campus of the University of Chicago, stands a brownstone building known currently as the Chicago Theological Seminary Building.
But the building's new occupants have more worldly pursuits than the study of God.
It is now the planned site for what will be the Milton Friedman Institute for Research in Economics.
The new $200m establishment will be dedicated to the Nobel prize-winning economist viewed as the pioneer of neo-liberal economic thought and founder of the so-called "Chicago School" of economists, whose policies have shaped world markets for decades.
However, those who commissioned the establishment could not have picked a more inauspicious time for its launch – as Friedman's policies, which influenced so many within US politics, are widely being blamed for the current global financial turmoil.
At a time when the world is beginning to view tighter regulation and oversight of markets as the only way out of the crisis, many people are questioning whether the 'Chicago school' of ideology itself has any future.
Dominating ideology
The Chicago School of Economics is less of an actual department than a school of thought – shaped by Friedman and his colleagues working across the economics department and the nearby law and business schools in the 1950s.
The 'Chicago School' influencedgovernments around the worldFriedman and his allies rejected Keynesianism – the popular economic theory of the time which espoused belief in the state's role in stimulating economic growth and stability in the private sector through interest rates, taxes and public works – in favour of "laissez faire" capitalism and deregulation.
"In the 1950s and 1960s there was only a small isolated minority who believed in methological individualism – the preference of individuals - as opposed to institutions,' says Gerald Friedman (who is not related to the late Milton), the professor of economics at the University of Massachusetts at Amherst.
"But time passed until, by the 1980s, the Chicago School came to dominate US economic thought."
But, although feted by many, critics argued that much of the Chicago School's ideas were best implemented by undemocratic states – pointing in particular to the infamous "Chicago Boys" of 25 Chilean economists trained by Friedman at the school who then returned to Chile to impose free-market policies under General Augusto Pinochet's rule - a period marked by his brutal repression and atrocities against human rights.
And just last month, as the US financial markets crumbled and protesters marched down New York's Wall Street, even Alan Greenspan, the former chairman of the US Federal Reserve, made the extraordinary admission to a US house committee on the crisis that he had "found a flaw ... in the model that I perceived is the critical functioning structure that defines how the world works" - the very basis of the free-market school of thought itself.
'Scapegoats'?
But Robert E Lucas, a professor of economics at Chicago University and a member of the original Chicago School, rejects claims that the ideology is responsible for the current financial turmoil, saying that the late Friedman and his colleagues have been made into "scapegoats".
In depth
"We have a free-markets tradition, but I personally don't believe [that the school is responsible]," he says.
"It doesn't mean anything – why don't you ask these guys [critics] what should be done specifically and what should be done now?
"People like [Josef] Stiglitz [the US economist and critic of free markets] use name-calling instead of just diagnosing the problem and saying what should be done.
"Should there have been regulation to prevent this? Well sure, but what sort of regulation? Let them spell out what regulation we should have in place."
But Gerald Friedman says that many people within the financial community feel it is the flawed methodology of the Chicago school which has facilitated the crisis.
"There is a lot of anger towards the Chicago school and the people on Wall Street feel betrayed,” he says.
"Deregulation has been a complete disaster for them."
"I think [the Chicago School] changed the direction of economics, but it’s over now and completely discredited."
Campaign issue
The question of the economy proved central in recent weeks on the US presidential election campaign trail.
In focus
Democrat Barack Obama, the victor and new president of the US, has Austan Goolsbee, a professor of economics at the Chicago Business school and Cass Sunstein, a legal scholar who taught at the Chicago University’s Law school for decades.
His defeated rival, Republican John McCain, had Jack Kemp, a fellow Republican and proponent of the Chicago school ideology.
McCain had been swift to seize on Obama's economic plans as "evidence" of what he called "socialism" during the race.
He's accused Obama of wanting to "spread the wealth" and of aiming for the role of "redistributor-in-chief" while Sarah Palin, his vice-presidential running mate, told a rally in Ohio that "now is not the time to experiment with socialism".
Obama, who was favoured by voters as being the best choice to deal with the economic crisis, assured voters he "loves the markets", causing some left-wing commentators to refer disparagingly to the Illinois senator's own advisers as "Chicago Boys".
But Gerald Friedman says that Sunstein, seen as a relative progressive, is viewed as the man who will shape president Obama's policies and he will be much more "aggressive" in finding a solution to the crisis.
"McCain's guys had the very conventional old-school aspects of [economics] which were 20 years out of date," he says.
"[With Obama] it's not New Deal, big government but, on the other hand, it's certainly – for first time since the 1970s - that we ... have a government that's a significant step [away] from the Chicago School."
Still believers?
However, if the Chicago School's philosophy is perceived by some to be finished, this is not a message that has so far trickled down to everyone.
On the university campus, students at the Chicago School of Business's sleek, glass-panelled school are still scurrying to classes - albeit in smart suits more befitting of a bank boardroom meeting than economics 101 classes - and meeting friends for coffee in the building’s cavernous hall.
They are the next generation of business leaders and the influence of the Chicago School of Economics looms large.
Many of them told Al Jazeera they had applied to study at the university purely for the prestige of attending classes still taught by the founding fathers of the free-market movement.
Nikolai, a young MBA (Masters of Business Administration) student from Germany who did not want to give his last name, said many of his friends had thought of switching their degrees from finance because of concerns over market conditions and fears of not being able to get jobs once they graduate.
But he still retains confidence in the school's tenets.
"Maybe it's just for the time being, this downturn," he ventures.
"Right now there are some arguments against it - but I’m still a believer in free markets."
In economics we understand down turns not as the end of capitalism, or free markets, but as part of cyclical activity. Proponents of other ideologies and systems see this as an opportunity to highlight failures in the system, and a failure of the system itself. Obama has promoted himself as being able to find solutions - what is he hoping to find? what is he hoping to do? Discuss whether the system itself is actually correcting - without any need for Government intervention, solution finding or adjustments.
Sunday, February 22, 2009
Prudent Credit Policy or Rejecting some from gaining Credit?
CBA tightens mortgages amid new deposit rules
Richard Gluyas February 23, 2009 The Australian
THE Commonwealth Bank will tighten borrowing rules for first-home buyers to insist they contribute at least 3 per cent of the purchase price in their own money, in addition to any available government grants.
The move is in response to growing industry concerns about the quality of loans to the fast-growing, first-home buyer market and is in anticipation of interest-rate hikes in coming years, due to the expected inflationary impact of the large, recent increase in household income.
Currently, government grants of up to $14,000 for an existing home and $21,000 for a new home mean some first-home buyers can purchase dwellings with a 5-10 per cent deposit and no cash contribution of their own.
"Customers who have skin in the game in terms of their own funds are more committed to continue their repayments," CBA group executive retail banking services, Ross McEwan, told The Australian.
"So in the next couple of weeks, we're implementing a policy to require borrowers to contribute a minimum of 3 per cent (of the purchase price) on top of any government grant."
The move by Australia's biggest home lender follows recent cuts to the amount that ANZ and National Australia Bank will lend to borrowers as a proportion of property value.
NAB last month cut its maximum loan-to-valuation ratio from 100 to 95 per cent, while ANZ in November reduced the proportion it would lend to mortgagees from 95 to 90 per cent.
"In response to the softening in the economic environment, we have been tightening lending standards in recent months because as a responsible lender, we do not want customers in a situation where they are over-extended," an ANZ spokesman said.
But the CBA is already looking beyond the downturn.
As standard variable rates plunge to their lowest level in almost four decades, following a 400 basis-point easing in monetary policy since last September, the CBA is preparing for an inevitable turn in the cycle.
Mr McEwan said the bank's mortgage serviceability buffer had been tightened to ensure that customers could still meet their repayment obligations if interest rates rose by 2.25 percentage points. This was higher than the previous buffer of 1.5 percentage points.
"Home owners in Australia have a very good track record of keeping up their repayments under various scenarios," Mr McEwan said.
"What we want to avoid is a US-type situation, where people with low-interest loans got caught out when interest rates started to rise."
The move will be interpreted by some as credit rationing, in an environment where the cost and availability of wholesale funding remain under pressure.
But Mr McEwan said this was not the case, pointing to the bank's proven ability to raise funds, as well as its appetite for residential lending that was demonstrated by a rising market share over the past 21 months.
Home lending, he said, had remained strong over Christmas and last month, with market share picking up by 26 basis points in December.
The CBA chief said the real motivation for the measure was prudent credit policy in an environment where interest rates would eventually rise.
"The buffer needs to be extended for a situation when inflation starts to pick up and interest rates rise," he said.
Meanwhile, the CBA will roll back its fees for customers using other banks' ATMs, dubbed "foreign ATMs".
I have been concerned about banks willingness to lend such large amounts over the last decade, so this news is long overdue from my perspective. Managing debt is a responsibility and I think it good that banks play a bigger role ensuring they lend to people able to cover that responsibility in the medium term as rates rise. The question people rarely ask is 'can I handle this debt for many years to come, and if times get tougher?' instead many have been permitted to borrow on the condition they have the ability to handle the debt in the immediate term whilst conditions remain constant - but nothing is constant! Do any of you disagree with me? Should banks be free to lend more, take bigger risks, giving people more freedom to chose?
Richard Gluyas February 23, 2009 The Australian
THE Commonwealth Bank will tighten borrowing rules for first-home buyers to insist they contribute at least 3 per cent of the purchase price in their own money, in addition to any available government grants.
The move is in response to growing industry concerns about the quality of loans to the fast-growing, first-home buyer market and is in anticipation of interest-rate hikes in coming years, due to the expected inflationary impact of the large, recent increase in household income.
Currently, government grants of up to $14,000 for an existing home and $21,000 for a new home mean some first-home buyers can purchase dwellings with a 5-10 per cent deposit and no cash contribution of their own.
"Customers who have skin in the game in terms of their own funds are more committed to continue their repayments," CBA group executive retail banking services, Ross McEwan, told The Australian.
"So in the next couple of weeks, we're implementing a policy to require borrowers to contribute a minimum of 3 per cent (of the purchase price) on top of any government grant."
The move by Australia's biggest home lender follows recent cuts to the amount that ANZ and National Australia Bank will lend to borrowers as a proportion of property value.
NAB last month cut its maximum loan-to-valuation ratio from 100 to 95 per cent, while ANZ in November reduced the proportion it would lend to mortgagees from 95 to 90 per cent.
"In response to the softening in the economic environment, we have been tightening lending standards in recent months because as a responsible lender, we do not want customers in a situation where they are over-extended," an ANZ spokesman said.
But the CBA is already looking beyond the downturn.
As standard variable rates plunge to their lowest level in almost four decades, following a 400 basis-point easing in monetary policy since last September, the CBA is preparing for an inevitable turn in the cycle.
Mr McEwan said the bank's mortgage serviceability buffer had been tightened to ensure that customers could still meet their repayment obligations if interest rates rose by 2.25 percentage points. This was higher than the previous buffer of 1.5 percentage points.
"Home owners in Australia have a very good track record of keeping up their repayments under various scenarios," Mr McEwan said.
"What we want to avoid is a US-type situation, where people with low-interest loans got caught out when interest rates started to rise."
The move will be interpreted by some as credit rationing, in an environment where the cost and availability of wholesale funding remain under pressure.
But Mr McEwan said this was not the case, pointing to the bank's proven ability to raise funds, as well as its appetite for residential lending that was demonstrated by a rising market share over the past 21 months.
Home lending, he said, had remained strong over Christmas and last month, with market share picking up by 26 basis points in December.
The CBA chief said the real motivation for the measure was prudent credit policy in an environment where interest rates would eventually rise.
"The buffer needs to be extended for a situation when inflation starts to pick up and interest rates rise," he said.
Meanwhile, the CBA will roll back its fees for customers using other banks' ATMs, dubbed "foreign ATMs".
I have been concerned about banks willingness to lend such large amounts over the last decade, so this news is long overdue from my perspective. Managing debt is a responsibility and I think it good that banks play a bigger role ensuring they lend to people able to cover that responsibility in the medium term as rates rise. The question people rarely ask is 'can I handle this debt for many years to come, and if times get tougher?' instead many have been permitted to borrow on the condition they have the ability to handle the debt in the immediate term whilst conditions remain constant - but nothing is constant! Do any of you disagree with me? Should banks be free to lend more, take bigger risks, giving people more freedom to chose?
Tuesday, February 17, 2009
Australian growth: Monetary policy and export demand
RBA's Malcolm Edey confident in China, India growth
Allison Jackson February 18, 2009 The Australian
CHINA and India would continue to grow at a fast pace for a "long time", boosting demand for Australian raw materials.Reserve Bank assistant governor of economics Malcolm Edey said today China and India had “long way to go” before they caught up to industrialised countries. “China and India … until the recent crisis were growing at extremely high rates. They have got plenty of scope to do that for a long time,” Mr Edey told a business forum in Sydney. Mr Edey said demand for Australian resources would continue to grow “which is going to be very good for Australian incomes”, and would help offset the impact of an aging population on economic growth. “China and India and other parts of the developing world have a long way to go to catch up and as they catch up they are becoming a bigger and bigger part of the world and that’s a very powerful influence in increasing global growth prospects,” he said. “I think that force will continue to operate in the long run, but we are seeing very severe short-term effects from the global financial crisis working against that at the moment.” China ranks as Australia’s biggest trading partner, while India’s importance has grown in recent years. India is now Australia’s 11th biggest trading partner, according to the Department of Foreign Affairs and Trade website. Mr Edey reiterated the Reserve Bank’s view that Australia would continue to outperform other industrialised nations “in the difficult period that lies ahead” due to the strength of the domestic financial system. Mr Edey provided no clues on the RBA’s attitude towards interest rates since its last board meeting on February 3. At the meeting, the RBA board cut interest rates by another 100 basis points, taking rates to a 45-year low, and signalled it was near the end of the easing cycle. But since then the economic situation has deteriorated even further, with Japan, Australia’s biggest export market, experiencing the worst economic conditions since World War II and Australia’s unemployment rate at the highest level since June 2006 while business and consumer confidence are in the doldrums. Market participants are hoping RBA governor Glenn Stevens will provide some clarification on the central bank’s strategy when he testifies before federal parliament on Friday.
It offers some Australians a little hope when we hear continued talk about increasing demand for Australian exports underpining better economic conditions than other parts of the globe, however, which sectors will most benefit from this continued demand?
On a slightly different tangent: is it reasonable to expect the RBA to continue adjusting rates, or should they be a little cautious and 'wait and see' the effects on the recent and significant movements?
Allison Jackson February 18, 2009 The Australian
CHINA and India would continue to grow at a fast pace for a "long time", boosting demand for Australian raw materials.Reserve Bank assistant governor of economics Malcolm Edey said today China and India had “long way to go” before they caught up to industrialised countries. “China and India … until the recent crisis were growing at extremely high rates. They have got plenty of scope to do that for a long time,” Mr Edey told a business forum in Sydney. Mr Edey said demand for Australian resources would continue to grow “which is going to be very good for Australian incomes”, and would help offset the impact of an aging population on economic growth. “China and India and other parts of the developing world have a long way to go to catch up and as they catch up they are becoming a bigger and bigger part of the world and that’s a very powerful influence in increasing global growth prospects,” he said. “I think that force will continue to operate in the long run, but we are seeing very severe short-term effects from the global financial crisis working against that at the moment.” China ranks as Australia’s biggest trading partner, while India’s importance has grown in recent years. India is now Australia’s 11th biggest trading partner, according to the Department of Foreign Affairs and Trade website. Mr Edey reiterated the Reserve Bank’s view that Australia would continue to outperform other industrialised nations “in the difficult period that lies ahead” due to the strength of the domestic financial system. Mr Edey provided no clues on the RBA’s attitude towards interest rates since its last board meeting on February 3. At the meeting, the RBA board cut interest rates by another 100 basis points, taking rates to a 45-year low, and signalled it was near the end of the easing cycle. But since then the economic situation has deteriorated even further, with Japan, Australia’s biggest export market, experiencing the worst economic conditions since World War II and Australia’s unemployment rate at the highest level since June 2006 while business and consumer confidence are in the doldrums. Market participants are hoping RBA governor Glenn Stevens will provide some clarification on the central bank’s strategy when he testifies before federal parliament on Friday.
It offers some Australians a little hope when we hear continued talk about increasing demand for Australian exports underpining better economic conditions than other parts of the globe, however, which sectors will most benefit from this continued demand?
On a slightly different tangent: is it reasonable to expect the RBA to continue adjusting rates, or should they be a little cautious and 'wait and see' the effects on the recent and significant movements?
Jobs not secure in Australia...?
General Motors to slash 47,000 jobs
Jacob Saulwick,February 18, 2009 - 2:37PM Sydney Morning Herald
The parent company of Australian car maker General Motors Holden will slash 47,000 jobs worldwide in the coming year, but it remains unclear how many local positions are under threat.
General Motors will lay off 26,000 workers outside the US as part of a plan to remake the company in exchange for massive financial aid, according to a document lodged this morning with the US Treasury.
But the carmaker says it expects Holden to remain viable, in part because of assistance extended by the Australian Government.
Holden's plans for a new, more fuel-efficient car, financed with government help, should ensure that Holden remains a profitable arm of GM worldwide, the company said.
Holden is not ruling out cutting local staff.
"We are scrutinising all aspects of the business and will be making some decisions - some of them tough decisions - in the coming weeks in terms of our structure and operations,'' a spokesman said.
"All of this contributes to the ultimate goal of being a viable, sustainable local operation,'' the spokesman said.
The survival of the global carmaker is far from certain.
GM has lodged restructuring plans with the US Treasury as a condition of a temporary multi-billion dollar survival loan.
With sales plummetting, GM could need a $US30 billion crutch from the US Government by 2011, the Treasury filing asserted.
The company is also asking for help from the governments of Canada, Germany, the UK, Sweden and Thailand.
Some worrying news for workers in Australia's automotive production industry, although there seems some hope as our Government continues to support Holden in its efforts to produce. Are you aware of other instances through our recent economic history where the Australian Government has stepped in to 'prop up' car companies producing in Australia?
Jacob Saulwick,February 18, 2009 - 2:37PM Sydney Morning Herald
The parent company of Australian car maker General Motors Holden will slash 47,000 jobs worldwide in the coming year, but it remains unclear how many local positions are under threat.
General Motors will lay off 26,000 workers outside the US as part of a plan to remake the company in exchange for massive financial aid, according to a document lodged this morning with the US Treasury.
But the carmaker says it expects Holden to remain viable, in part because of assistance extended by the Australian Government.
Holden's plans for a new, more fuel-efficient car, financed with government help, should ensure that Holden remains a profitable arm of GM worldwide, the company said.
Holden is not ruling out cutting local staff.
"We are scrutinising all aspects of the business and will be making some decisions - some of them tough decisions - in the coming weeks in terms of our structure and operations,'' a spokesman said.
"All of this contributes to the ultimate goal of being a viable, sustainable local operation,'' the spokesman said.
The survival of the global carmaker is far from certain.
GM has lodged restructuring plans with the US Treasury as a condition of a temporary multi-billion dollar survival loan.
With sales plummetting, GM could need a $US30 billion crutch from the US Government by 2011, the Treasury filing asserted.
The company is also asking for help from the governments of Canada, Germany, the UK, Sweden and Thailand.
Some worrying news for workers in Australia's automotive production industry, although there seems some hope as our Government continues to support Holden in its efforts to produce. Are you aware of other instances through our recent economic history where the Australian Government has stepped in to 'prop up' car companies producing in Australia?
Thursday, January 29, 2009
Our Dream Homes...
We've just been through such a significant period of economic growth which has brought about significant increases in housing sizes and expectations. As credit tightens in and economic growth slows Australians need to be adjust their expectations about what kind and size of houses/accomodation we will live in. Recently I read Clive Hamilton's book "Affluenza", in which interesting figures were presented about the significant number of Australians who felt guilty about the fact that one entire room of their house was devoted to storing 'stuff'.
Interesting that this article popped into The Australian today:
Australians living large in oversized houses, ABS study shows. Siobhain Ryan, 29 Jan 2009.
Australians are living large in houses too big for them in greater numbers than ever before.
A new Australian Bureau of Statistics analysis of census data shows 41 per cent of all occupied private homes in 2006 had two or more bedrooms than were needed, up from 34 per cent a decade earlier.
Another 36 per cent had one extra bedroom above international standards for minimum household requirements. “This trend has implications for the ongoing sustainability of residential development in Australia,’’ the ABS report said. ``Declining household size accelerates the demand for new housing development, while growth in excess bedrooms indicates less efficient use of housing, (and) both of these factors increase the demand for resources and energy.’’ Canberra is pouring hundreds of millions of dollars into expand Australia’s housing stock, offering tax breaks to developers to build affordable housing and funding to lower development costs. But rising expectations, as well as the growth in empty nesters, could erode the capacity of new programs to house more people. The average floor area of new homes has grown by almost a third in the 20 years to 2006-07, despite a shrinking in average household size over the same period.
Interesting that this article popped into The Australian today:
Australians living large in oversized houses, ABS study shows. Siobhain Ryan, 29 Jan 2009.
Australians are living large in houses too big for them in greater numbers than ever before.
A new Australian Bureau of Statistics analysis of census data shows 41 per cent of all occupied private homes in 2006 had two or more bedrooms than were needed, up from 34 per cent a decade earlier.
Another 36 per cent had one extra bedroom above international standards for minimum household requirements. “This trend has implications for the ongoing sustainability of residential development in Australia,’’ the ABS report said. ``Declining household size accelerates the demand for new housing development, while growth in excess bedrooms indicates less efficient use of housing, (and) both of these factors increase the demand for resources and energy.’’ Canberra is pouring hundreds of millions of dollars into expand Australia’s housing stock, offering tax breaks to developers to build affordable housing and funding to lower development costs. But rising expectations, as well as the growth in empty nesters, could erode the capacity of new programs to house more people. The average floor area of new homes has grown by almost a third in the 20 years to 2006-07, despite a shrinking in average household size over the same period.
Welcome back to class lil'Economists
This will be a very interesting year to study Economics. Though some are screaming for Government to solve the problem and revisit Keynesian economics, others say 'stand back' and let the system run through it's cycle. Schumpeter described this as a phase for innovation and that economic downturns were part of 'creative destruction'.
Today in the Australian:
Give capitalism some credit, by Christian Kerr - Jan 30 2009
KEVIN RUDD got the rhetoric right at the start.
"We are in the economic equivalent of a rolling national security crisis and the challenges are great," the Prime Minister declared when he announced the bank guarantee at a hastily convened press conference in Parliament House on October 12.
He used the phrase again two days later when he unveiled the $10.4billion national economic security strategy.
Compare Rudd with Britain's Gordon Brown. Heaven knows what Brown's intent was when he described the global financial crisis as "the birth pangs of a new global order".
If it was spin doctoring, it was the clumsiest seen since another British Labour figure, ministerial adviser Jo Moore, sent that email on the afternoon of September 11, 2001, advising: "It is now a very good day to get out anything we want to bury."
Brown's words reminded voters of individual pain; the pain of losing your job, your home, your business, your savings.
Rudd's first alerted them to the severity of the situation, then placed it in the context of wartime, when privation is patriotic.
More recently he gave an extraordinary week-long series of speeches delivered around the nation and ending on Australia Day. The wartime rhetoric was wrapped with the rhetoric of January 26.
Rudd portrayed Australia as a nation assailed by hostile forces from abroad, a nation that will be bruised, but will prevail because of our values and our history.
James Curran, the historian of prime ministerial rhetoric, said yesterday that Rudd's appeal toall things Australian looked "perfunctory".
Some of his other rhetoric has been plainly preposterous - talk of "unrestrained greed abroad", "exorbitant salaries" and "irresponsible risk".
The truth is that innovative financing over the past decade or so has resulted in thousands of companies that would never have got money obtaining funds, the creation of millions of jobs and rising living standards around the world.
Credit is the engine that drives growth. Overregulate it and things become like trying to drive a LandCruiser with a Corolla donk beneath the bonnet. Because they're both Toyotas, it doesn't mean they are the same.
Capitalism got us into this mess, but capitalism will get us out. Just as fortunes have been lost, fortunes will be made cleaning it up.
Why does this writer disagree with Rudd's statements?
Discuss the language of Rudd and Brown, and for what reason they are using such language.
Today in the Australian:
Give capitalism some credit, by Christian Kerr - Jan 30 2009
KEVIN RUDD got the rhetoric right at the start.
"We are in the economic equivalent of a rolling national security crisis and the challenges are great," the Prime Minister declared when he announced the bank guarantee at a hastily convened press conference in Parliament House on October 12.
He used the phrase again two days later when he unveiled the $10.4billion national economic security strategy.
Compare Rudd with Britain's Gordon Brown. Heaven knows what Brown's intent was when he described the global financial crisis as "the birth pangs of a new global order".
If it was spin doctoring, it was the clumsiest seen since another British Labour figure, ministerial adviser Jo Moore, sent that email on the afternoon of September 11, 2001, advising: "It is now a very good day to get out anything we want to bury."
Brown's words reminded voters of individual pain; the pain of losing your job, your home, your business, your savings.
Rudd's first alerted them to the severity of the situation, then placed it in the context of wartime, when privation is patriotic.
More recently he gave an extraordinary week-long series of speeches delivered around the nation and ending on Australia Day. The wartime rhetoric was wrapped with the rhetoric of January 26.
Rudd portrayed Australia as a nation assailed by hostile forces from abroad, a nation that will be bruised, but will prevail because of our values and our history.
James Curran, the historian of prime ministerial rhetoric, said yesterday that Rudd's appeal toall things Australian looked "perfunctory".
Some of his other rhetoric has been plainly preposterous - talk of "unrestrained greed abroad", "exorbitant salaries" and "irresponsible risk".
The truth is that innovative financing over the past decade or so has resulted in thousands of companies that would never have got money obtaining funds, the creation of millions of jobs and rising living standards around the world.
Credit is the engine that drives growth. Overregulate it and things become like trying to drive a LandCruiser with a Corolla donk beneath the bonnet. Because they're both Toyotas, it doesn't mean they are the same.
Capitalism got us into this mess, but capitalism will get us out. Just as fortunes have been lost, fortunes will be made cleaning it up.
Why does this writer disagree with Rudd's statements?
Discuss the language of Rudd and Brown, and for what reason they are using such language.
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